Is Target Repeating Best Buy's Mistake?

Target (NYSE: TGT  ) is throwing down the gauntlet in the battle pitting bricks-and-mortar chains against more fleet-footed online retailers. The country's second-largest department store chain announced yesterday that it would be price-matching Amazon.com (NASDAQ: AMZN  ) all year round.

Best Buy  (NYSE: BBY  ) turned heads in October with the announcement that it would price-match Amazon during the pivotal holiday shopping season.

We'll find out in a few weeks how that panned out for the struggling consumer electronics retailer, though it's hard to imagine it helping. Just last week Best Buy was complaining about losing $65,000 on matching a Wal-Mart (NYSE: WMT  ) promotion offering iPhone 5 handsets for $150. Now imagine battling Amazon, which has the lean infrastructure to undercut every traditional retailer.

Price-matching sounds great on the surface, especially to a struggling retailer. Best Buy's dying in a layered cake of negative comps. If it can drum up foot traffic by convincing locals that they won't be overpaying at the superstore, what's the problem?

Well, the problem is that price-matching attracts the knowledgeable. It encourages research. It destroys margins, especially after other traditional shoppers catch on.

Thankfully, Target has some distinct advantages over Best Buy here. For starters, Target sells a lot of fresh groceries that Amazon doesn't sell outside of its Seattle-tethered AmazonFresh delivery service. Target has also thrived by offering exclusive designer- and celebrity-inspired apparel and furnishings. It doesn't need to match Amazon when the e-tailer isn't stocking items that are unique to the discounter.

However, Target may still be in for a rude awakening in the areas of toys, electronics, and media. Target is more chic than cheap these days. Wal-Mart lives and dies by low prices, but "Tar-jhay" typically settles for merely fair prices.

Target knows what it's doing, and that's one thing that eulogizers won't be able to say about Best Buy.

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